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Thursday, December 10, 2009

We've been watching a buyer's market for so long, we've almost forgotten how to see the signs of the building of a seller's market. Keep in mind, a seller's market slowly builds (over months) while a buyer's market can hit overnight.

While the National Association of Realtors announced sales of resale homes jumped more than 10 percent nationally in October 2009 over a year earlier – those numbers are not the numbers to watch while you're trying to find the bottom of your local market. Don't make a local decision based on national information.

The resale numbers have been up in markets all across the country for more than a year, we just never heard about it from the evening news, et. al., because your national news venues don't watch local markets. You should.

Most buyers and the media in general look to pricing to dictate that the bottom of the market has been hit. But before making that dictum, a buyer must first define what the bottom really is. Many would say, it's when prices hit the lowest they've been. True. That's part of the signs to watch.

And if price is you're only interest, then go ahead and wait for the bottom in pricing. Keep in mind, however, that everyone else is also looking for that number. When prices start to move up, they are moving up because the demand is starting to outpace supply and higher priced homes are starting to sell again, thus you may have missed the optimal time to purchase a house at a low price with someone else's money to help you with closing costs.

When the prices hit bottom (and the only way you can figure that out is the first month that prices start moving up, you've already missed the bottom), consumers are already starting to beat each other out for a shrinking inventory.

So, here are the indicators to watch to find the bottom:

1. Inventory: Watch for inventory to start dropping. When this happens, you've entered the bottom territory. Buyers start jumping on the bandwagon once there is so much inventory that prices have hit an acceptable low level.

2. Seller Subsidy: When sellers are giving back maximum amounts allowed by loan programs, you've hit the bottom. Some loan programs allow up to 6 percent of the sales price to be given back to the buyer at the settlement table from the seller for closing costs. Imagine, purchasing a house for $300,000 and getting $18,000 back from the seller for the buyer's closing costs – that's a sign of the bottom. (And this is most likely after getting 3 or 4 percent off the sales price – another $9,000 to $12,000).

3. Pricing: Now this is where everyone watches, when in reality it's the sign that the market has been climbing up from the bottom for several months. If you're going to track pricing as a bottom indicator, then start watching it from month to month, instead of year over year. Thus, when prices start moving up, say, from March to April to May to June – THEN you may have hit the bottom on pricing. A market can experience price increases month after month while still showing lower prices than a year before – thus the buyer, while waiting for signs that prices are moving up over last year, may have missed the bottom on pricing. By the time value starts surpassing year over year, the climb up has already begun.

4. Multiple offers: As buyers start competing for the best properties that have hit the lowest price, then you've found another sign of the bottom of the market.

5. Days on market: Once prices have hit bottom and buyers start gobbling up houses and start competing with each other – then you'll see the days on market begin dropping.

For some markets across the country, all of these indicators have already started showing signs of the bottom, such as Florida, Washington DC, Phoenix, Las Vegas, Las Angeles, and other metropolitan areas that were hit heavy by foreclosures.